The Importance of Startups, Starsky Robotics folds, OEMs Prime Takeover Targets - SAI Newsletter #11
With most of the US and EU under some form of isolation in order to ‘flatten the curve’ and try to prevent the coronavirus from spreading in those regions, there are many new-ish technologies and services getting highlighted: conferencing (Work From Home) apps, video on-demand streaming, take-out / delivery services, curbside pickup, and autonomous delivery drones to name a few.
Other businesses, many that involve close, face-to-face interaction like ridehailing, ridesharing, & car dealerships have taken HUGE hits during this pandemic. What if ‘social distancing’ becomes the norm moving forward, admittedly a very difficult prospect in places like China, Japan, and India where there are many more people relative to space available? These services, specifically as it relates to mobility, were already on their way to building a critical mass and the coronavirus just solidified and accelerated their usage and acceptance in the market.
E-commerce sales have been a thing in China for the many years and was becoming mainstream in the US / EU but now due to the coronavirus along with Amazon’s aggressiveness to grow the market, it’ll pick up steam much faster and dare I say, become the preferred purchase channel for large segments of the market here and the EU.
Does that also mean that public transportation will take a hit (subways, busing)? Electric bicycles, assuming that they can reach pricing that becomes affordable to the masses, can take over as a major ‘last mile’ mode of transport. Virtual home tours, selling cars online - everything that traditionally was done in-person, that’s ALL up for disruption and as the saying goes, ‘Necessity being the mother of invention’ and all. There’s plenty of opportunity for innovation in all the areas I’ve just mentioned and that’s why I expect that much of the pivots in consumer habits are here to stay both in the US and in China.
IN THE NEWS THIS WEEK:
- Is NIO throwing in the towel? Their $151M in the bank (as of Dec. 2019) doesn’t provide them enough working capital to last through the year and the coronavirus shortened even further how much runway their cash provided. Will they be able to close the deal with the Hefei govt. on that ¥10B cash infusion in order to keep their doors open before it’s too late?
- GM, Ford, FCA will close all their manufacturing facilities in the US, Canada and Mexico until March 30TH. This will affect ~150K workers in all. This is where the most profitable vehicles that these OEMs make are produced so you can bet that the manufacturing & industrial engineering teams will be working OT, hand-in-hand with safety folks to try and implement some sort of ‘clean’ environment so that they’re able to restart production in or around that March 30th date. That date seems pretty optimistic to me, but I’ve also seen these teams work miracles in order to keep building cars so we shall see. Most European OEMs are also shutting their factories for now as well.
- Bravo! BYD, one of the largest EV manufacturers in the world, in February, within weeks transformed into arguably the largest surgical mask manufacturer in order to help with the global shortfall of masks and disinfectants. US OEMs including Tesla are now trying to determine whether they can switch some lines over in order to manufacture more ventilators for the US.
- Starsky Robotics folds after 5 years in business. Starsky was different than others because they tried to mix fully autonomous with human remote operation. Highway and over the road (OTR) driving would be done autonomously but the initial / last mile(s) would be taken over by a human that controls the tractor remotely.
The CEO outlines much of why he thinks they ultimately failed to bring a viable product to market, and it’s something that other aspiring autonomous mobility startups should heed (read his take here).
- The recently launched XPeng P7 sedan receives research approval for US road testing.
TRENDING ON SOCIAL MEDIA:
- WeWork may not get their $3B share buyback after all from Softbank. Seems WeWork is being investigated by the SEC and Justice Dept. so Softbank is using that news as a way to try to void their original commitment of buying shares from current shareholders – including Adam Neumann.
- The Dow has wiped out over 9K points - all the gains since Trump was inaugurated on Jan 20, 2017.
- Tesla CAN NOT continue production in their Fremont facility according to the Alameda County Sheriff. Shares down 16% today.
- All the major ridehailing / autonomous services testing their vehicles in California will suspend their services until further notice in order to ‘help flatten the curve of community spread.’
PRODUCT / SERVICE INTRODUCTIONS:
- The best looking electric bicycle so far – The Babymaker – is being sold as part of an Indiegogo campaign. It basically looks like a normal single speed, mountain / road bike. It’s a sleeper, the battery is hidden inside the downtube and motor taking place of the rear tire hub.
- The NIU NQi GTS Sport, (NIU - the Chinese electric moped manufacturer who has sold over 1M mopeds and is now aggressively entering the EU and US markets) NIU's highest performing scooter with MSRP of €3,599 (including 19% VAT) is currently on sale in the EU and bonus – it’s being offered at a €500 presale promotional discount. It will launch in the US on April 1ST also at a promotionally discounted price of $3,799 (normal MSRP - $4,599).
This weekly newsletter is a collection of articles I feel best reflect the happenings of the week or important trends that have effects on the automotive and mobility sectors here and in the US, I also provide a point of view that I hope educates and sparks debate.
The Sino Auto Insights team
AI / AVs
This is the type of article I read that makes me think the industry followers still aren’t seeing where the market is headed or at least they’re in denial. Traditional automotive engineers and designers are driven by the ‘fit, form, function’ philosophy. That has worked well for exterior / interior car design in a market where most people purchased or leased (every 3-5 years) their own vehicles.
In the article - Bob Lutz, an automotive legend (and one of my automotive hero’s, you should pick up his book ‘Guts’) who’s worked at places like GM, BMW, Chrysler, and Ford, gets ‘IT’ by stating about autonomous vehicles ‘no one gives a damn what they look like.’ Most important for the people who don’t own these vehicles, who are likely just utilizing them as part of a service being provided is the ‘value,’ a relative term, that the SERVICE not the VEHICLE provides through its ‘User Experience.’
The better services will fulfill the needs and / or promises that company providing the service communicates it will. The best services will be able to provide a ‘customized,’ individual experience …to the masses (aka mass customization). They’ll also be able to create new ways of monetizing parts of that experience (using the data collected) through innovative ‘new’ services you didn’t think you needed. Think Different. Think Apple.
Since these vehicles and services are still in the conceptual phase, there is still a lot of ‘design’ to be thought through, the technology to be developed to enable it, and pricing still being a hurdle for most people. That’s why I cut these companies that are throwing their concepts out there some slack. These companies don’t know where or how fast the market moves into this uncharted territory so they’re throwing out their best WAGs. Mark my words though, once there are many competitors out there and autonomous vehicles move toward commoditization, how the ‘User Experience’ is designed and executed will be the one main differentiator of the winners vs. the losers.
Bottom line – when it comes to service & design think more public bus, the OG of ‘bread loaf’ design and less Cadillac, Mercedes, and Lexus. Which makes me wonder …if what I am saying doesn’t make sense, why don’t more people get upset about the design of buses?
Since 2010, Apple, Google, Amazon, Microsoft and Facebook (the Big 5) have been on an AI startup buying spree. Last year alone, there were 231 acquisitions of AI startups, most companies you’ve NEVER even heard of. That’s because the Big 5 normally scout out promising researchers and startup companies that haven’t made their first dollar of revenue and acquire them way before they get to unicorn status. Apple alone buys about 30-40 companies annually, most for sums in the tens and a few in the hundreds of millions of dollars.
If we argue that the Big 5 have gotten too big, then it would benefit the world if startups stayed independent longer providing the Big 5 with real competition in the future (think Douyin vs. WeChat), further pushing the innovation envelop. The Big 5 are smart though and rather than wait for that to happen, they acquire these startups and absorb their teams or businesses into their own.
As someone who is generally a fan of competition and innovation it seems a bit ironic for the companies that have been known for their innovation in the past are the companies that tend to stifle it once they’ve reached a certain maker cap. For those aspiring entrepreneurs who think they have a new product / service that can take on the Big 5, when they come knocking with that checkbook, maybe you take a pass and keep them guessing as you innovate yourself into a player.
The Chicago city council has approved a new ordinance that requires that all new commercial buildings with >30 parking spaces and new residential buildings with >5 spaces have at least 20% of their parking spaces ‘Electric Vehicles Supply Equipment Ready.’
This ordinance puts the onus on the developer to install the infrastructure during the building process since it’s 6x’s more expensive to retrofit existing buildings with EV chargers. This should actually make more buildings more attractive to commercial tenants and residents that currently drive or are keen to won an EV in the future. I am not sure how much new building is going to happen in 2020 and beyond in Chicago but seems like a win to me for the city. Let’s hope more cities follow the Windy City’s lead on this one.
The ridehailing, food delivery, payments sectors in Southeast Asia (SEA) have become a mostly two company race with Gojek announcing a quite impressive $1.2B capital raise ($3B total funding round) during a time when most mobility startups around the globe are finding it difficult to set up meetings, let alone raise money and maintain valuations.
Along with Grab, Gojek are competing to be the dominant platform for SEA, but their investors are reminded of the bloody competition between Uber and Didi in China a few years ago that threatened to empty both of their bank accounts and ultimately led to Didi buying out Uber’s China ops. Same scenario here with Gojek, with much more leverage now, and Grab rumored to be talking merger – a merger that could eliminate competition in the region and hence may not be approved by local govts.
With the growth of these two companies, I could see major moves by both into Uber / Lyft strongholds here in the US & EU. With their weak share prices and money losing ways, will Uber be able to compete with them for long if that’s the case?
Currently, the private equity (PE) sector has ~$2.5 Trillion in ‘dry powder’ aka money on the ‘sidelines,’ waiting to be spent on a ‘deal’ and due to the coronavirus, markets are tanking and there happen to be many perceived bargains in the form of companies with falling share prices.
With Ford, GM, FCA shares all currently trading near 52 week low’s the OEMs are likely being considered by some of the PE firms as prime takeover targets. Each of these companies have valuable assets, namely their Truck operations that provide the bulk of each OEM’s annual profits.
The most attractive target of the three is likely GM, whose Cruise Automation, which as of mid-2019 was valued at $19B, could be carved out to extract its full value. The rest of the company would likely be sold off in parts or liquidated, a scary thought for most people in these parts.
Taking over one of the OEMs could end up creating a mess for the takeover party though because of the OEMs operating in multiple markets, dealership networks and union contracts that could be costly and time consuming to unwind, but with continuing downward pressure on the equity markets, the share price may still reach a level that makes sense for one of the raiders to have a go.
Sino Auto Insights is a Beijing, China-based market research and advisory firm that specializes in assisting companies analyze, strategize, and develop products and services that will shape the future of mobility and transportation. Members of our team have experience working in Detroit, Silicon Valley as well as here in China across multiple sectors and functions as entrepreneurs as well as working at larger companies like Apple, Google, Amazon, GM and FCA, and many others.